I know I’ve asked this question before but I didnt get a clear answer. So I’ll try asking it again in a different manner.
How do I find or identify the interest differential in a currency pair to execute a carry trade?
I have indicator to show that on chart. You can pull that info from MT4. When you open “Market Watch” right click on pair you wish to carry trade over to next day and then “Specification”. You should see “Long Swap” and “Short Swap”. Is this you are after?
You could google “Country interest rates” and trade the lowest currency against the highest, assuming the pairs are available to trade through your broker. The idea here is to buy low, sell high. However, if you go long and the price on the chart is going down then you’re still going to lose money, defeating the purpose of taking advantage of the difference in their interest rates. To make any money this way you need to trade big, and trade in the right direction, or just hope that that market ranges for months on end while holding on to it. It’s not the best strategy for retail traders.
Here’s a currency calculator that might help.
Good luck.
In the current economic climate there is no carry trade happening. The carry trade as you mentioned only happens when there is sizeable interest rate differentials. For example in 2011 the Australian Interest Rate was quite high compared to Japan and Switzerland. It would be better for you to learn about USD correlations. And safe haven trades. Basically the USD is the worlds reserve currency and during times of crisis USD will rally. This is called risk off and on the other hand risk on sees the USD fall and currencies like AUD, NZD, EUR, GBP and CAD rally. Risk on also sees the equity markets rallying. So if you notice correlation between equity market and one or more of the USD pairs you could then be onto a good trade to follow the equity market.
I’m sorry but i’m not familiar with the MT4 format.
Ok that’s good to know, but how would I know when the climate is right? would i have to check interest rates periodically or when a particular economy starts booming? Lastly, is carry trading an effective way to trade? Thanks in advance.
I’m not too sure how good the carry trade strategy is. I’m quite new to forex. My thoughts are that it would be a longer term position trading strategy. To know when it would come into play, yes you need to wait till one economy is booming compared to another. To check interest rate differentials you could google search “Central Banks Rates”
I thought you were interested in swap rates from your broker. If you are really looking for very long term investment then yes, interest rates are very good. Don’t know why Babypips calendar doesn’t have them but you can find updated ones on forex factory calendar bottom left or Google it as already mentioned above.
How would you check if economy is booming? By interest rates change?
Carry trade could be as effective way to trade as scalping.
Thanks, I’m still in the learning stages, so I’m still trying to make some sense out of all this.